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House Passes Bill On Taxes

Measure Closes State's Budget Deficit

Christopher Keating

June 07, 2011

The House of Representatives voted early Tuesday morning for a 277-page omnibus tax bill that repeals the cabaret tax, caps the cigar tax, provides relief for Bridgeport's pension fund, postpones fare increases on the Metro-North Commuter Railroad and closes the final budget gaps for the next two years.

After 6 1/2 hours of debate that went past midnight, the House voted, 83 to 63, on a mostly party line vote. About a dozen fiscally conservative Democrats, including some who had voted against the original budget and tax increases last month, broke with their party and voted with the Republicans.

The railroad fares had been projected to increase by 1 percent each year, but under the bill, that would not happen for two years. At that point, the legislature could vote again to postpone the fare increases even further.

The multifaceted bill also eliminates the state's 15-member Transportation Strategy Board that operated under Republican Govs. John G. Rowland and M. Jodi Rell, and it repeals the 3 percent cabaret tax that had been approved by the legislature only a month ago. The bill also caps the cigar tax at 50 cents.

"That really affects the premium cigars, the wrappers of which are grown in Connecticut," Rep. Patricia Widlitz said, referring to high-quality wrappers from farms in Enfield, Windsor Locks and other towns.

The measure now goes to the Senate, which could vote as early as Tuesday as lawmakers race to finish their work before the regular legislative session ends at midnight Wednesday.

The bill reverses state plans to borrow money for operating expenses for the current fiscal year, which ends June 30, because revenue collections have increased so much recently.

"We no longer need to borrow," said Widlitz, D-Guilford, who is co-chairwoman of the tax-writing finance committee. Economic recovery bonds will no longer be needed and the state's operating surplus will be used to cover the difference, she said.

As the economy was declining sharply after the collapse of the Lehman Brothers investment bank and the subsequent massive downturn in the stock market that led to a deep recession, legislators thought they would need to borrow $1.3 billion. But that number kept steadily declining, and the legislature authorized the state to borrow up to $956 million to close the budget gap. As the economy has recovered, the state has collected more money in taxes than the legislature had originally projected.

The state has been paying for the borrowing through a surcharge on electricity bills, which will be stopped. But there will be no retroactive refunds for the money already paid by Connecticut Light & Power customers on their electric bills.

"We charged a small subset of people, who use CL&P as their utility company, $40 million," said House Republican leader Larry Cafero. "And yet we're not going to give this small set of people their $40 million back. Is that fair? Under any definition, anywhere, is that fair? I don't think so."

If the House approves the bill, it would then go to the Senate.

NO VOTE ON UNION DEAL

Republicans were surprised to learn that they probably will not have the chance to vote on the $1.6 billion concession deal between Democratic Gov. Dannel P. Malloy and the state employee unions. If the legislature fails to take action on individual union contracts, they go into effect automatically. As such, the legislature has avoided taking any votes on many contracts in recent years.

Under the budget-implementation bill, the General Assembly has the option of calling itself into special session to approve the agreement with the State Employee Bargaining Agent Coalition, but Republicans fear that is increasingly unlikely because the Democratic-controlled legislature has repeatedly avoided voting on union contracts.

"We ultimately are the fiscal body of the state of Connecticut," said Deputy House Republican leader Vincent Candelora of North Branford. "This legislature sets the policy of how, fiscally, we are going to govern the state. ... These are the kind of decisions that should require us coming back here."

Section 8 of the 175-section bill covers the expected contributions to the Bridgeport pension plan for police and firefighters, based on language that was approved in a letter by state Treasurer Denise Nappier. The bill allows the city to contribute less into the pension fund than is required.

"This governor and this legislature took great pride in fully funding our pension obligations," Cafero said on the House floor. "But this governor and this legislature are saying, 'We could do it, but if you're a city out there and you're up against it, you don't have to.' ... Yet we, as a state, are sanctioning the very thing that this governor said he would never do - underfund your pension obligation."

Malloy's senior adviser, Roy Occhiogrosso, responded: "It's not the ideal situation. No one disagrees with that. But we don't live in the ideal world. We live in this world, and Bridgeport is facing some unique challenges. ... I'm glad that Rep. Cafero acknowledges what Gov. Malloy is doing to stabilize the state's finances."

The omnibus bill also calls for the legislature to fill the $400 million gap over two years because Malloy and the state employee unions reached $1.6 billion in savings and concessions when they originally expected $2 billion. In the first year, there was a nearly $300 million gap, and in the second year the figure was about $100 million.

Union Savings

Concerning the union agreement with state employees, Cafero said it was "impossible to make any savings in the first two years" from a wellness program that is designed to save $205 million by ensuring that state employees become healthier. Stamford-based Pitney Bowes enacted a similar program and did not receive immediate cost-savings in the first two years, Republicans said.

"The Office of Fiscal Analysis wrote that they can't verify that data. They don't know where the numbers came from," Cafero said.

But Rep. Toni Walker, a New Haven Democrat who is co-chairwoman of the budget-writing appropriations committee, said that money would be saved by forcing state employees who use maintenance drugs, such as those for high blood pressure and high cholesterol, to receive their daily drugs from a lower-cost, mail-order operation.

Cafero added that the state budget is being balanced with $180 million in cost-savings suggestions from state employees. "They didn't make the suggestions yet, and we didn't adopt them yet," Cafero thundered on the House floor. "$180 million from a suggestion box? By the way, is that a concession? Did we need a negotiation for that? ... So that's $205 million that we don't have any evidence on. And $180 million we don't have any evidence on."

The total of nebulous savings, Cafero said, is nearly $600 million out of $1.6 billion - either "wishful thinking or not a concession at all."

Occhiogrosso responded: "The administration is entirely comfortable that the $1.6 billion can and will be achieved. It's been verified by actuaries and health care consultants, and the administration has pledged to live by that figure. ... There's no question that there are savings that are projected in the agreement that people are disputing. There are information technology savings that can be achieved right away - meaning beginning July 1."

The state employee unions are expected to vote on the SEBAC deal by June 24.

HEALTH CARE POOLING

Following a lengthy debate, the Senate gave final legislative approval to a health care pooling bill that will allow municipalities and certain nonprofit agencies that contract with the state to buy into the state employee insurance program.

The measure establishes an Office of Health Reform and Initiative to help mesh Connecticut's laws with the federal health care overhaul. It also calls for improved data collection at the state Department of Public Health and provides a framework for containing costs.

Democrats hailed the bill as a first step toward reigning in spiraling health care costs and improving access to health insurance. They compared the concept of pooling to buying items at Costco, where economies of scale help lower costs.